How much should your SaaS marketing budget be?
3rd January 2023
Whether you’re a brand new SaaS startup or an established name in the industry, you’re likely full of ideas for marketing your product and growing your business. Growth goals are a great starting place, but without a clear and realistic budget to build from, they can be financially risky.
With the cost of doing business increasing, it’s more important than ever to start with a solid and achievable budget when creating your marketing plan. But how much should a marketing budget be?
Building a B2B SaaS marketing budget for your business comes down to a lot more than figures, as you need to start with an in-depth understanding of your brand, your customers and your goals.
This article rounds up data from across the web and opinions from key thought leaders, helping you find the budget that’s right for your business.
SaaS marketing budget benchmarks
There is no one right answer when it comes to how much you should be spending on marketing, though industry benchmarks can help you gain a realistic idea.
In general business terms, Gartner reports an average CMO marketing spend of around 10%, up from just 6.4% in 2021 as businesses bounce back from the pandemic.
When it comes to SaaS companies, a SaaS Capital survey reports a median 14% of annual recurring revenue (ARR) spent on marketing at B2B SaaS companies. With above-median growth
Of course, industry benchmarks are not without their biases: these figures are often taken from the top performing SaaS companies, or those on the stock market whose data is publicly available. This could result in higher spending being reported.
Why do SaaS companies spend more on marketing?
SaaS marketing budgets tend to vary significantly as a result of the distinct SaaS business model. SaaS companies find themselves under significant pressure to grow recurring revenues, often making significant investments in Customer Acquisition Cost (CAC) that pay for themselves gradually over the course of the customer’s lifetime.
The goal is always to recoup the cost of acquisition before churn catches up. Therefore SaaS marketing budgets need to cover a significant CAC as well as ongoing marketing efforts to retain customers for the long term.
Especially in the early phases of growth, SaaS providers look to spend a significant amount on marketing, many outspending their revenue, to establish their brand and product in the market.
SaaS marketing budget formulae
One popular method for working out an appropriate budget works with 40% of your revenue-growth delta. To put this in context, a company with $1.5 million in ARR that wants to reach $4 million in ARR would be looking at a growth delta of $2.5 million.
40% of this would mean a SaaS marketing budget allocation of $1 million.
Another option is to work backwards from your goals, starting with how many new customers need to be created by your marketing team.
For example, if your goal is $400k in sales with each new customer generating $1k, your team will need 400 new customers. Next, check your historical data to see what proportion of deals your sales team closes. Let’s say this figure is 1 in 5. You now know that your marketing team needs to create 2,000 opportunities.
Next check the average marketing cost behind your historical generated opportunities, including staff costs and infrastructure. Let’s say that this is $50/opportunity – so to create the necessary 2,000 opportunities to make $400k in sales, you will need to budget $100k.
The golden ratio
Many businesses optimise their marketing budgets by working out the ratio between customer acquisition cost (CAC) and lifetime value (LTV). The ratio between these figures describes how much-added value one customer brings to your business – and therefore how much you can afford to spend bringing them onboard.
In SaaS there is a “golden ratio” of 3:1, meaning a 3 x ROI per customer acquisition.
To calculate the LTV:CAC ratio, you will need to have both your Lifetime Value (LTV) and Customer Acquisition Cost (CAC) on hand. These are important metrics for most SaaS businesses and can be easily calculated if you do not already have them.
For example, if the average LTV of a customer for your company is £1,000 and it costs your company £200 to acquire a new customer, the LTV:CAC ratio would be 5. So if you are aiming to acquire 100 new customers in a year, your marketing budget would need to be approximately £20,000.
SaaS marketing budget examples
SaaS businesses of all sizes can take cues from enterprise-level companies when it comes to a marketing-first approach to budgeting. Many of these larger companies spend over 40% of their revenue on marketing.
Companies such as Monday.com and Asana are heading up this trend in 2022, spending 75% and 69% of their revenue respectively. Salesforce and Squarespace come in around the enterprise median of 41% while more established brands such as Shopify and Dropbox are only spending 22% and 17% of their ARR.
The trend here is clear: businesses that invest more of their revenue in marketing experience faster growth, increasing awareness of their brands and drawing in more customers. Once SaaS companies are household names, they can drop their marketing budget a little, focusing on word-of-mouth recommendations and retaining valued customers.
Where is the SaaS marketing budget sweet spot?
Of course, as businesses grow, their marketing budgets grow and change with them. Trends show a spend of 10% of revenue as a safe option for median growth, 40% as a benchmark for faster growth, and 80% as a high-risk investment for aggressive growth phases.
We recommend a safe marketing spend between 10% and 40% of your annual recurring revenue (ARR) depending on your growth goals. This level of investment sits comfortably between slow and unsustainable growth, ensuring that you create desired growth without burning through capital too quickly.
How to create your unique marketing budget
Understanding industry trends when it comes to SaaS marketing budgets is a great starting point for your marketing plan. However, ultimately the decision must be unique to your company.
Do your research thoroughly before settling on a figure, and gain a clear understanding of how much funding you have to work with, what your year-on-year growth plans are, how much you can realistically market your product for, and what mix of marketing methods you’re likely to use.
You’ll find that “how much” is only part of the question. You also need to consider where and how to allocate your budget to ensure that you’re getting the most bang for your buck.
Do you need help with your SaaS marketing?
One significant question to ask when it comes to setting out a SaaS marketing budget is whether to do marketing work yourself, employ an in-house team, or outsource to a trusted SaaS marketing agency.
With years of experience partnering with global SaaS businesses, Xander Marketing is the ideal partner for creating a marketing strategy that works to your budget. Supporting fast and sustainable growth through brand building, increasing site traffic, boosting leads and more, we can help you achieve your business goals cost-effectively.